Senate passes online sales tax bill; both Risch, Crapo vote no

The Marketplace Fairness Act, the bill allowing states to require merchants to collect and remit sales taxes for online purchases by their residents, has passed the Senate on an overwhelming 69-27 vote, with bipartisan backing. It's expected to face a tougher time in the House; click below for a full report from McClatchy's bureau in Washington, D.C.

Idaho Sens. Mike Crapo and Jim Risch both voted no, though they’ve both been supportive of the concept and backed the bill in an earlier procedural vote. “They basically felt at the end of the day there wasn’t enough amendments that were offered,” said Crapo spokesman Lindsay Nothern. “There was a lot of concern about different provisions in the bill. We got some feedback from a lot of small businesses that were concerned about it.”

Just one amendment to the bill was offered in the Senate, and both Crapo and Risch supported it; it passed, 70-24, and included changes easing states’ process for participating. But it didn’t include raising the small business exemption from the bill’s $1 million annual receipts level, something both Idaho senators favored. “They did express support for the right of states to be able to determine this and not the federal government,” Nothern said, “but in the end felt that the bill had some flaws that could have been ironed out with the amendment process but were not.”

WASHINGTON — A bill that would authorize states to collect sales taxes for online purchases easily passed the Senate on Monday with bipartisan support, but it faces a tougher hurdle in the House of Representatives.

The Marketplace Fairness Act sailed through the Senate, 69-27, without going through the usual committee process.

Majority Leader Harry Reid, D-Nev., took the legislation directly to the floor last month, bypassing the Senate Finance Committee, which is led by a prominent opponent of the bill, Sen. Max Baucus, D-Mont.

But in the Republican-ruled House, members will be more reluctant to vote for anything that looks like a new tax, and the legislation will have to clear the Judiciary Committee. That panel’s chairman, Rep. Robert Goodlatte, R-Va., has expressed concerns that the bill could hurt small businesses and, as written, is too complicated to navigate.

“While it attempts to make tax collection simpler, it still has a long way to go,” Goodlatte said in a statement.

Current laws allow states to collect taxes only from retailers with physical presences in the buyers’ states, resulting in the loss of a projected $23 billion in annual sales tax revenue nationwide, according to a University of Tennessee study. Idaho still requires its residents to pay the state's 6 percent tax on their online purchases; they're supposed to report those and pay up on their annual state income tax returns, but few do; the same is true in many states.

The bill would require all businesses that make more than $1 million in out-of-state sales to charge state and local taxes for remote purchases made on the Internet or by catalog. The businesses then would have to remit the taxes to the appropriate state agency.

Supporters of the bill say the change is needed because brick-and-mortar stores are at a competitive disadvantage to online-only businesses that don’t have to charge sales tax.

Retailers applauded the Senate’s passage of the bill Monday.

“Congress needs to address this sales tax disparity and allow retailers to compete freely and fairly,” Stephen I. Sadove, chairman of the board of the National Retail Federation, a Washington trade group, said in a statement. “Retailers of all shapes, sizes and channels deserve a level playing field.”

Conservative groups such as the Heritage Foundation and Americans for Tax Reform oppose the bill, arguing that it would create a compliance nightmare for small businesses, which would have to keep track of almost 10,000 state, local and municipal tax codes.

“The main concern here is that this would institute regulation without representation,” said Curtis Dubay, senior tax policy analyst for the Heritage Foundation. “This would conscript businesses that have no dealings within a state — other than having customers there — to collect sales taxes for this state. … We don’t think that states have the power to regulate businesses that do not reside within their borders.”

One of the legislation’s biggest critics is eBay Inc. The Internet auction site has been lobbying lawmakers to increase the small business exemption either to $10 million in annual out-of-state sales or to 50 employees.

“Our concern is that there are many small businesses that would now face significant new tax compliance burdens and that the Internet would be a harder place for them to grow,” said Brian Bieron, senior director of global public policy for eBay.

Bieron criticized Senate leadership for bringing the Marketplace Fairness Act directly to the floor without submitting it to debate and amendment in committee beforehand. He said he’s hopeful the bill will face more scrutiny and further modification in the House.

“We think the House process should improve the bill, we’re very confident about that,” he said. “ … I think there are a lot of senators who are not convinced that this particular version of the bill is perfect in any way and they’re going to applaud a better version in the end.”